FRANKFURT (Reuters) - Euro zone banks lowered the bar on mortgage approvals last quarter for the first time in over two years but demand for credit kept falling amid high borrowing costs and a stagnant economy, a European Central bank survey showed on Tuesday.
The ECB has pushed interest rates to record highs to rein in inflation, bringing bank credit growth in the 20 countries that share the euro to a standstill.
While banks were slowly turning less cautious -- at least about extending home loans -- households and companies showed little appetite for taking on fresh debt, the ECB's quarterly Bank Lending Survey showed.
Banks eased their standards for approving loans to households for house purchases in the three months to March and tightened access to corporate credit less than they had expected.
But they still reported a "substantial decline" in demand for credit from companies -- which they did not expect three months earlier -- and a "small decline" for housing loans.
"Higher interest rates, as well as lower fixed investment for firms and lower consumer confidence for households, exerted dampening pressure on loan demand," the ECB said.
Yet banks expected an improvement in the three months to June, with only a "moderate net decrease in demand" for corporate loans and even an increase in demand for loans to households.
Interest rates on new mortgages fell as banks anticipated rate cuts from the ECB. This was also seen putting an end to banks' record profits.
"The dampening impact of the ECB’s interest rate decisions expected over the next six months also extends to overall bank profitability, with a moderately negative contribution from provisioning and impairments," the ECB said.